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But businesses still dragging heels on investment

New research from the Grant Thornton International Business Report (IBR), a survey of more than 3,300 businesses in 45 economies, reveals a spring surge in business optimism, with all global regions marching in step, despite a slowing of growth in some emerging economies. The data suggests that the recovery is moving onto a more sustainable footing and, with economic uncertainty declining, the hope is that businesses will renew investment in the coming months to ensure long-term growth.

The IBR reveals that net 44% of businesses globally are optimistic for the economic outlook, the highest since 2007, and a 17 percentage point increase from the previous quarter. And this confidence is in evidence across the globe: in North America (64%) optimism is at its highest since 2004, and in the EU and Asia Pacific (both 37%) since 2007 and 2008 respectively. In Latin America optimism rebounded from a four-year low in Q4-2013 to net 43%.

Furthermore, the proportion of businesses globally citing economic uncertainty as a constraint on ability to grow is down from 42% to 38% over the past three months.

Global recovery starting to take hold

Ed Nusbaum, Global CEO at Grant Thornton, commented: "The IBR data provides strong hope that the global recovery is starting to take hold. The rise in optimism closely mirrors recent growth of stock markets around the world - the S&P 500 closed at a new record high earlier this month. We have moved into the first prolonged period of economic stability since the financial crisis and while challenges remain (particularly in the eurozone, Ukraine and some emerging markets) firms can think and plan for the longer term.

“Importantly, business communities in five of the world's largest economies – the US, China, Japan, Germany and the UK – have all seen tremendous rises in confidence over the past three months. As major powers with significant cross-border ties, a more positive outlook in these economies is bound to trickle down to their trading partners and boost the global economy.

“With the IMF predicting robust global growth of 3.6% this year, we believe conditions are perfectly poised for dynamic firms to begin to invest more. We expect to see this pick up during the rest of 2014. There has been a marginal improvement in plans to invest in plant & machinery, but R&D has remained flat and not increased in line with optimism. As IMF Managing Director Christine Lagarde said recently, greater investment needs to happen if this new found optimism is to be converted into meaningful growth.”

High optimism in Ireland

For the first time, business leaders in Ireland (94%) are the most optimistic in the 45-economy survey. Elsewhere, the US (up 30 percentage points to 66%), China (up 16pp to 38%), Japan (up 11pp to 17%), Germany (up 14pp to 65%) and the UK (up 12pp to 83%) all report soaring optimism.

Ed Nusbaum added: “The turnaround in Ireland is remarkable. We have seen a steady increase in business optimism over the past two years and now that the country has exited its EU bailout programme, confidence has rocketed. Around two thirds of business leaders in Ireland now expect to increase profits in the year ahead, up from just a quarter this time last year.

“However, the situation in Ireland, as in much of the eurozone, remains fragile, and while unemployment continues to fall, the economy actually showed a small contraction in Q4 and personal debt levels remain high. However, there’s a lesson other economies can learn from the way policymakers have implemented a bold and decisive recovery plan. For local businesses, the hope is now that the months of painful adjustments are finally starting to bear fruit.”